4.1.5.4.2. Cooling-Off Period
Once the registration statement is filed with the SEC, the SEC will review it. This review period is called the cooling-off period (also called the registration period) because the company will not be able to sell shares to the public, and only certain kinds of limited offers will be allowed.
The Securities Act gives a timeframe of 20 calendar days for SEC review of the registration statement. (In practice, it often takes longer, but you should know the 20-day timeframe for purposes of the exam.) During this time, the SEC will not try to determine whether the security is a good investment. Rather, it will make sure everything that is supposed to be in the registration statement is actually in it.
If the SEC finds no material omissions or misleading statements, the registration statement will become effective, meaning that sales of the security may take place. If the SEC finds the registration statement to be inadequate in some way, it will send a deficiency letter. A deficiency letter is an order to amend the registration statement, often by providing additional information. Once an amendment has been filed, the SEC will review the amended registration statement. If the amendment did not satisfy the SEC’s concerns, the SEC will send another deficiency letter and the issuer will need to file another amendment.
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